Ruling Number: 11395140-105[238-2012/VUK-1- . . .]–2611 Introduction In a private ruling dated December 9, 2014, the Istanbul Tax Office (Taxpayer Services Procedural Group Directorate) addressed whether withholding tax applies to wage payments made to residents of other countries for labor services received in connection with engineering services provided abroad, as well as documentation requirements. The taxpayer stated that their company is engaged in electrical and electronics engineering activities. While providing engineering services in countries such as Iraq, Morocco, Germany, Tunisia, Poland, and Austria, they receive labor services from residents of those countries. The taxpayer requested clarification on: Whether withholding tax is required on wage payments made to residents of these countries, and Documentation requirements. Legal Framework – Domestic Law Income Tax Law (Law No. 193) Article 6 – Limited Liability: Real persons not resident in Türkiye are taxed only on their income derived from Türkiye. Article 7 – Income Deemed Derived in Türkiye (for limited liability persons): 3. Wages: (a) If the service is performed or being performed in Türkiye, or utilized in Türkiye; (b) Attendance fees, dues, bonuses, and similar payments to chairpersons and members of boards of directors, auditors, and liquidators of institutions located in Türkiye, if utilized in Türkiye. “Utilization” means: The payment is made in Türkiye, or if the payment is made abroad, it is credited to the accounts of the payer or the person on whose behalf the payment is made in Türkiye, or separated from profits. Article 61 – Definition of Wages: Wages are cash, benefits in kind, and other advantages provided to employees dependent on an employer and affiliated with a specific workplace in return for services. The nature of wages is not changed by being paid under different names (allowances, compensation, bonuses, premiums, etc.) or as a percentage of profits. Article 94 – Withholding Tax Obligation (Paragraph 1(1)): Withholding tax applies to wages and other payments considered wages under Article 61 (except those benefiting from exemptions), according to Articles 103 and 104 (income tax brackets). Tax Procedure Law (Law No. 213) Article 238 – Wage Payroll Requirement: Employers are required to keep a wage payroll for each month for wages paid. The payroll must show the month to which it belongs, be prepared and dated by the 20th day of the following month, and be signed by the establishment owner/manager and the clerk preparing the payroll. Employers may prepare wage payrolls in any form they wish, provided they comply with these principles. Double Taxation Treaty Provisions The following double taxation treaties apply (effective dates): Country Effective Date of DTT with Türkiye Morocco January 1, 2007 Germany January 1, 2011 Tunisia January 1, 1988 Poland January 1, 1998 Austria January 1, 2010 Iraq: No double taxation treaty exists between Türkiye and Iraq. Common Treaty Provision – Article 15 (Dependent Personal Services) – Paragraph 1: Salaries, wages, and other similar income derived by a resident of one Contracting State in respect of employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is exercised in the other State, such income may be taxed in that other State. Ruling Conclusion The ruling distinguishes between countries with a DTT and Iraq (no DTT). For Countries with a DTT (Morocco, Germany, Tunisia, Poland, Austria): Factor Determination Where is the labor service performed? In the country of residence (Morocco, Germany, Tunisia, Poland, or Austria) Is the service performed in Türkiye? No Taxing right under Article 15(1) of the DTT Only the country where the service is performed (the worker’s country of residence) Does Türkiye have the right to tax? No Withholding tax required in Türkiye? No For Iraq (No DTT): Factor Determination Where is the labor service performed? Iraq (outside Türkiye) Is the service performed in Türkiye? No Under domestic law (Article 7 of Income Tax Law No. 193) Income is deemed derived in Türkiye only if the service is performed or utilized in Türkiye Does Türkiye have the right to tax? Yes (since no DTT, domestic law applies – and domestic law taxes Türkiye-source income only; however, the service is performed abroad, so arguably no Türkiye-source income) Correction: The ruling states that for Iraq (no DTT), withholding tax is required under domestic law. However, under Article 7 of the Income Tax Law, wages are deemed derived in Türkiye only if the service is performed or utilized in Türkiye. Since the service is performed in Iraq, there is a potential inconsistency. The ruling concludes that withholding tax applies for Iraq. Documentation Requirements (For Countries with a DTT) To benefit from the treaty exemption (no withholding tax), residents of Morocco, Germany, Tunisia, Poland, and Austria must: Obtain a Certificate of Residency from the competent authorities of their home country, proving that they are fully liable to tax in that country on their worldwide income. Provide the original certificate along with a notarized or Turkish Consulate-certified Turkish translation to the withholding agent (the taxpayer). Withholding agents must retain these certificates and present them to the authorities when required. If the Certificate of Residency cannot be provided: Domestic law provisions will apply instead of the treaty provisions. Wage Payroll Requirement (For All Payments) Under Article 238 of the Tax Procedure Law No. 213, the taxpayer (as employer) is required to: Prepare a wage payroll for each month for wages paid. Show the month to which the payroll belongs at the top. Prepare and date the payroll by the 20th day of the following month. Have the payroll signed by the establishment owner/manager and the clerk preparing it. Keep the payroll for record-keeping purposes. This applies regardless of whether the wages are paid to residents of Türkiye or abroad. Summary Table Country DTT with Türkiye? Where is service performed? Taxing Right Withholding Tax in Türkiye? Payroll Required? Morocco Yes (effective 2007) Morocco Only Morocco No (with certificate) Yes Germany Yes (effective 2011) Germany Only Germany No (with certificate) Yes Tunisia Yes (effective 1988) Tunisia Only Tunisia No (with certificate) Yes Poland Yes (effective 1998) Poland Only Poland No (with certificate) Yes Austria Yes (effective 2010) Austria Only Austria No (with certificate) Yes Iraq No Iraq Türkiye (under domestic law – service performed abroad? Ruling says yes) Yes (according to ruling) Yes Important Notes This private ruling is based on Article 413 of the Tax Procedure Law No. 213. The ruling becomes invalid if incorrect information is provided, or if there is ongoing tax audit, litigation, or reconciliation related to this matter. Acting in accordance with this ruling protects the taxpayer from tax penalties and default interest for the related transactions. Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.